Luxembourg: Financial Sector Assessment Program—Technical Note on Stress Testing and Systemic Risk Analysis

Luxembourg: Financial Sector Assessment Program—Technical Note on Stress Testing and Systemic Risk Analysis
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Volume/Issue: Volume 2024 Issue 185
Publication date: June 2024
ISBN: 9798400278938
$20.00
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Topics covered in this book

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Banks and Banking , Finance , bank solvency stress , insurance solvency stress test , solvency impact , banking sector solvency stress test result , bank Liquidity-Solvency interaction , alternative investment , Stress testing , Mutual funds , Insurance companies , Commercial banks , Global , Europe

Summary

The Luxembourg financial system is highly interconnected, diverse and complex. It has displayed a high level of resilience in the past but currently faces a backdrop of heightened economic, financial, and geopolitical uncertainty. Investment funds have grown since the 2017 FSAP, while their connections to other funds, banks, nonbank financial intermediaries, and foreign entities have also increased. The domestic banks are exposed to the ongoing downturn in credit and house price cycles, especially in the high-risk mortgage segment with floating-rate loans. Securities portfolios in large banks are mostly held-to-maturity and spread across euro area issuers. Against the risks, the financial system maintains higher capital ratios than euro area peers, has low but rising nonperforming loans, and benefits from government support measures to the private sector from an AAA-rated sovereign.